Robust drilling and production activity in the Eagle Ford, Permian Basin, Granite Wash, and other oil-producing areas of Texas has unleashed high demand for frac water and a surge of produced water as wells come online. A single large Eagle Ford frac job can require as much as 11.5 million gallons of water – enough to submerge a one-acre plot of land under more than 30 feet of water.[1] After the frac job, a sizable proportion of this fluid flows back and must be collected and either disposed of or reused. And after that, once a well begins producing, an average of 10 barrels of produced water will likely accompany each barrel of oil produced.[2]

Texas now produces nearly 3 million barrels per day of crude oil and condensate – more than Mexico or Kuwait.[3] But it must deal with more than 10 times this much produced water each day. Indeed, data from the Argonne National Laboratory suggest that as early as 2007, the state’s oil and gas fields produced a volume of water equivalent to nearly 22 percent of all water used by municipalities in Texas that year.[4] Yet this massive potential resource has – to date – gone largely unused because treating oily, salty water was too expensive. Continue Reading

Earlier this week, the Texas Railroad Commission held its first “show cause” hearing under the rule amendments adopted last October to address issues related to disposal wells located in potential high-risk seismic areas. Under the amendments, the Railroad Commission has the authority to modify, suspend, or terminate a disposal well permit if it is determined that a disposal well is likely to be or determined to be contributing to seismic activity. At the June 10-11 hearing before the Railroad Commission’s Hearings Division, XTO Energy Inc. was ordered to show cause why the injection permit for a Parker County (TX) well should not be cancelled and the well ordered shut-in due to an alleged connection raised by new seismic research between ongoing operation of the well and seismic activity in the vicinity. In addition to the XTO well, the Railroad Commission’s order also covered a Wise County well operated by Enervest Operating L.L.C. Continue Reading

New York State garnered worldwide media attention on December 17, 2014, when Governor Andrew Cuomo’s administration announced after six years of study that it was instating a complete ban on high-volume hydraulic fracturing statewide. Despite the interest this action created, it was certainly not the first example of how states vary in their handling of hydraulic fracturing, whether it is through legislation, regulation, or court rulings. For example, the rules governing the development of natural gas in the Marcellus shale in Pennsylvania through hydraulic fracturing have seen numerous changes over the last several years, pursuant to multiple court rulings, state laws, local zoning, and Department of Environmental Protection regulation.

North Carolina has now joined Texas, Pennsylvania, Ohio, Colorado, and New York in making headlines by allowing hydraulic fracturing within its borders. In 2014, the North Carolina legislature lifted the moratorium on hydraulic fracturing. Although the state has yet to approve any drilling units, two lawsuits addressing the process and makeup of the Mining and Energy Commission in charge of granting such permits have officially delayed any actual activity in the state. Continue Reading

In the wake of Texas’ recent “ban on banning hydraulic fracturing,” Oklahoma lawmakers have passed a similar law—SB 809—prohibiting municipal governments from regulating oil and gas drilling at the local level. The bill now heads to Governor Mary Fallin, who is expected to sign it into law.

Oklahoma enacted SB 809 prohibiting local drilling regulations—one of several similar proposals in the Oklahoma legislature—in response to local efforts to curb or ban advanced drilling techniques such as hydraulic fracturing after reports linking increased seismic activity in Oklahoma to the surge in drilling in the state in recent years. Excluding offshore drilling, Oklahoma is the fifth largest crude-producing state in the U.S. Continue Reading

Operators will likely refrac more oil and gas wells this year and further accelerate such activity in 2016. The reason is simple: substantial bang for CAPEX bucks. A recent study by engineers from SPE and Baker Hughes estimates that Bakken oil wells can be refraced for $1.8 million apiece – roughly ¼ of what it currently costs a top operator to drill and complete a new well. Yet the Bakken refracs in the study increased recoverable reserves by an estimated 69 percent and boosted production by 7.55 times relative to the pre-refrac level. Meanwhile, Eagle Ford wells can be refraced for $2.8 million apiece – about ½ a top operator’s average completed well cost. The Eagle Ford refracs reviewed in the study boosted production by an average factor of 7.26 relative to the pre-refrac production level and increased estimated recoverable oil reserves by 53 percent.

Equally profound, the study showed “no discernible correlation” between the amount of time a well has produced and the post-refrac performance metrics: In essence, even “young” wells may in fact be prime refrac candidates. Exhibit 1 shows the performance of refraced Bakken and Eagle Ford wells relative to well age. The performance metrics shown are the ratio of initial production (“IP”) post-refrac to initial production after the initial fracturing job, and the increase in estimated ultimate recovery (“EUR”).

On Monday, May 18, 2015, Texas Governor Gregg Abbott signed House Bill 40 into law, prohibiting cities, towns, and local municipalities in Texas from enacting bans on fracing. The new law provides that “oil and gas operations [are] subject to the exclusive jurisdiction of [the] state” and preempts the authority of other political subdivisions to regulate oil and gas operations, except that a local municipality may enact, amend, or enforce ordinances and other measures that (i) regulate only activities related to oil and gas operations that occur aboveground, (ii) are commercially reasonable, (iii) do not effectively prohibit oil and gas operations conducted by reasonably prudent operators, and (iv) are not otherwise preempted by state or federal law. The bill passed by a large margin in the Texas House of Representatives in mid-April and was passed by the Texas Senate earlier in May by a margin of 24 in favor and only 7 against. Continue Reading

On May 15, 2015, BakerHostetler filed a request for preliminary injunction against the final rule the Bureau of Land Management (BLM) issued to regulate hydraulic fracturing on federal and Indian lands. The motion was filed in the United States District Court for the District of Wyoming on behalf of the Independent Petroleum Association of America and Western Energy Alliance. The motion details the flaws in BLM’s final rule and requests that the federal district court halt implementation until the legal challenge is resolved. BakerHostetler filed the first legal challenge to the final rule on March 20, 2015, the same day BLM announced the final rule. Read more >>

In an article published late last month in the journal Nature Communications, researchers at Southern Methodist University pointed to hydraulic fracturing activities as the probable cause of an increase in earthquakes near Azle, Texas, based on a study they had conducted in the area. The researchers’ conclusion conflicts with the stance of the U.S. Geological Survey that the cause of the earthquakes is inconclusive.

In the study, the SMU researchers analyzed data from the U.S. Geological Survey’s National Earthquake Information Center, which reported that from early November 2013 through January 2014, there were 27 earthquakes near the cities of Azle and Reno, Texas. Since 2008, the northern region of Texas has experienced four swarms of earthquakes, with 130 total quakes. Most of the earthquakes have been relatively small, but citizens have expressed concern about the uptick, particularly since the U.S. Geological Survey reports that the area had only one recorded earthquake in the 58 years before 2008. In the article summarizing the findings of their study, the SMU researchers stated that “while some uncertainties remain, it is unlikely that natural increases to tectonic stresses led to these events.” Continue Reading

On May 6, 2015, the Internal Revenue Service (IRS) published proposed regulations [REG-132634-14], which if finalized would clarify that income from certain oil and natural gas fracturing (“fracking”) services is “qualifying income” for purposes of determining whether a master limited partnership (MLP) qualifies for favorable “passthrough” federal tax status.

Generally, an MLP qualifies for passthrough tax status if 90 percent or more of the MLP’s gross income for the year is qualifying income, which includes certain income from natural resource-related activities, including income from the exploration, development, mining and production, processing, refining, transportation, and marketing of minerals and natural resources. If an MLP does not satisfy the 90 percent threshold, the IRS could treat it as a taxable corporation, meaning that its income could be subject to two levels of tax – corporate income tax at the level of the MLP and additional tax at the level of the partners in the MLP at the time the income is distributed.

On May 1, the Department of Transportation—through its operating agencies the Pipeline and Hazardous Materials Safety Administration[1] and the Federal Railroad Administration—issued its final crude-by-rail rule. The rule mandates more stringent standards for newly constructed tank cars—along with the retrofitting of older ones—and imposes new operational controls for high-hazard flammable trains.[2] Despite the new rule, congressional and regulatory scrutiny remains focused on crude-by-rail transportation as accidents continue to occur, including a derailment on May 6 near Heimdal, North Dakota.[3]

About this Blog

The North America Shale Blog is presented by members of BakerHostetler’s Energy and Shale team. BakerHostetler has a rich tradition serving clients in the energy industry, offering comprehensive services from our offices nationwide.

Stay Connected

About this Blog

The North America Shale Blog is presented by members of BakerHostetler’s Shale Team. BakerHostetler has a rich tradition serving clients in the energy industry, offering comprehensive services from our offices nationwide.